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Better Buy: Corning Incorporated vs. Apple

This analysis pits supplier against customer to see which is the better company to own today.

Though the two companies are a world apart in terms of size, shares of tech giant Apple(NASDAQ:AAPL) and its supplier Corning(NYSE:GLW) have soared punch for punch over the past year, each rising exactly 45% as of this writing.

However, as the mutual fund industry's admonition goes, past performance is not necessarily an indicator of future returns. So let's look at both Apple and Corning across three important investing criteria to determine which stock looks like the better buy today.

Financial fortitude

As one could expect, both Apple and Corning are in great financial shape. However -- spoiler alert! -- Apple is in unquestionably better financial position than Corning as the four measures of solvency and liquidity below indicate:

Company

Cash and Investments

Debt

Cash From Operations

Current Ratio

Corning

$4.8 billion

$4.6 billion

$2.8 billion

3.6

Apple

$257.3 billion

$99.2 billion

$66.3 billion

1.4

Data source: Corning and Apple investor relations, Yahoo Finance.

As a starting point, it briefly deserves noting that Corning itself is no slouch. Its balance sheet appears initially clean, and the company should generate plenty of cash flows from operations.

However, with the exception of the current ratio, Apple easily takes the cake in this comparison as it operates on an entirely different scale than Corning. Hopefully, this is more or less self-evident. However, just to give you some context, Apple's net cash balance and cash from operations are 785 times and 23 times larger, respectively, than those of Corning. Case closed. Let's move on.

Winner: Apple

Image source: Getty Images.

Durable competitive advantages

As mentioned earlier, Corning has long been known as a supplier of the glass screens for Apple and other smartphone original equipment manufacturers (OEMs). But aside from this commonality, the two companies are incredibly different.

Not to fawn over it too much, but Apple has built the largest profit machine the world has ever seen by implementing a technology marketing strategy that allow it to capture nearly all of the smartphone industry's economic profits. Its high-margin tablet, watch, PC, and services businesses certainly don't hurt either. Apple has achieved its overwhelming success by owning every aspect of the smartphone experience, from the hardware design and engineering to the operating system and application software (the App Store).

It's also no secret that few other companies have been as successful as Apple at creating an aspirational aura around their products; if anything, the buzz surrounding Apple's upcoming 10th-anniversary iPhone will serve as the latest example of the enduring power of Apple's brand. Of course, questions remain as to whether Apple can replicate this dynamic as it moves toward new product categories such as self-driving cars, but it is without question one of the most dominant companies in the world today.

Turning to Corning, the company is a far more diverse industrial conglomerate than many investors realize. Though Corning operates five distinct reporting segments, its display technologies and optical communications segments provide roughly two-thirds of its sales, and the bulk of its profits. For those unfamiliar with the company, these two segments build digital display panels for electronics manufacturers and make fiber-optic cables. They are both relatively stable in nature.

Moreover, the majority of its segments operate in fairly mature industries, so change comes fairly slow at Corning; the company is 165 years old after all. However, it remains intently focused on innovating within its various industrial verticals thanks to its CEO Wendell Weeks. So while the company is no Apple, it seems more than reasonable that Corning will be able to maintain its profitable, albeit sleepy, place within industrial America for years to come.

Winner: Apple

Valuation

In the final section of this analysis, let's compare the kinds of premium the market places on shares of Apple and Corning. Here's a quick snapshot of three of the most commonly used valuation metrics for both companies:

Company

P/E

Forward P/E

P/Cash Flow

Corning

7.8

15.7

5.2

Apple

16.7

13.5

13.2

Data source: Yahoo Finance and Reuters.

It's tempting to simply conclude that Corning is the winner in this analysis because it is demonstrably cheaper in two of the three categories. However, valuation is relative, and investors should always remember to compare a stock's valuation against its expected growth rates.

That's where Wall Street's consensus estimates come in: Corning is expected to grow its sales by 4.9% this year and 1.7% next year, while Apple should see its revenue climb 5.1% and 11.5% over the same time intervals.

It also bears noting that Apple's aforementioned net cash hoard also artificially inflates the implied valuation for its core operations. After backing out $157 billion in net cash from Apple's current $741 billion market cap, we see that the Mac maker's core business trades at just 12.7 times net income.

To be sure, this is still much higher than Corning's current P/E. However, given the strength of Apple's core business model and many of the advantages discussed above, I still see Apple shares as the more expensive but more attractive long-term option today.

Winner: Apple

And the winner is...Apple

Hats off to Corning, but beating Apple here was going to be a tall order. To be sure, Corning is an admirable company that certainly deserves investors' attention, particularly those interested in the industrials sector in general and the high-end manufacturing industry in particular. However, Apple today sits in what is arguably its most powerful competitive position ever, and that's truly saying something. That's why Apple deserves the win here as the better stock to own today.